1. Which of the following will increase the breakeven quantity? a. A decrease in
ID: 1193932 • Letter: 1
Question
1. Which of the following will increase the
breakeven quantity?
a. A decrease in overall fixed costs
b. A decrease in the marginal costs
c. A decrease in the price level
d. A increase in price level
2. The higher the interest rates
a. the more value individuals place on
future dollars.
b. the more value individuals place on cur-
rent dollars.
c. the fewer investments will take place.
d. Does not affect the investment
strategy
3. Assume a firm has the following cost and
revenue characteristics at its current level of
output: price = $10.00, average variable
cost = $8.00, and average fixed cost = $4.00.
This firm is
a. incurring a loss of $2.00 per unit and
should shut down.
b. realizing only a normal profit.
c. realizing an economic profit of $2.00 per
unit.
d. incurring a loss per unit of $2.00, but
should continue to operate in the short
run.
4. Sarah’s Machinery Company is deciding
to dump their current technology A for a
new technology B with small fixed costs
but big marginal costs. The current tech-
nology has fixed costs of $500 and mar-
ginal costs of $50 whereas the new
technology has fixed costs of $250 and
marginal costs of $100. At what quantity
is Sarah Machinery indifferent between
two technologies?
a. 5
b. 6
c. 7
d. 8
5. What is the net present value of a project that
requires a $100 investment today and returns
$50 at the end of the first year and $80 at the
end of the second year? Assume a discount
rate of 10%.
a. $10.52
b. $11.57
c. $18.18
d. $30.00
6. You expect to sell 500 cell phones a month,
which have a marginal cost of $50. If your
fixed costs are $5,000 per month, what is the
breakeven price?
a. $10
b. $50
c. $60
d. $100
7. You are considering opening a new
business to sell dartboards. You
estimate that your manufacturing equip-
ment will cost $100,000, facility updates
will cost $250,000, and on average it
will cost you $80 (in labor and material)
to produce a board. If you can sell
dartboards for $100 each, what is your
breakeven quantity?
a. 1,000
b. 3,500
c. 4,375
d. 17,500
8. Which of the following is NOT true if a firm
shuts down and produces zero output in the
short run?
a. Variable costs will be zero.
b. Losses will be incurred.
c. Fixed costs will be greater than zero.
d. Fixed costs will be less than zero.
9. What are some of the solutions for a hold-up
problem?
a. Mergers
b. Contracts
c. Exchange of “hostages”
d. All the above
10. Which of the following is classified as a sunk
cost?
a. Cost of the next-best alternative
b. Additional cost of producing an addi-
tional unit
c. Research costs to determine the imple-
mentation of a technology
d. Total cost of producing a product
Explanation / Answer
1 c. A decrease in the price level 2 b. the more value individuals place on current dollars 3 d. incurring a loss per unit of $2.00, but should continue to operate in the short run. 4 a. 5 5 b. $11.57 6 c. $60 7 d. 17,500 8 c. Fixed costs will be greater than zero. 9 d. All the above 10 c. Research costs to determine the implementation of a technology
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